PESTLE Analysis of Sainsbury: Doc

Corporate Strategy

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
MAIN BODY...................................................................................................................................3
1. Business environment and industry attractiveness based on Pestle and porter's 5 force
model...........................................................................................................................................3
2. Unique capabilities of company to have competitive advantage............................................6
3. Evaluating recent business strategy the company undertook using the three SAFe tests.......8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The report consists of merger of Sainsbury and Asda and corporate strategy adopted by
Sainsbury to merge Asda as well as after effects of the merger where it gets influenced by
various political, legal aspects. Corporate strategy is the group of strategies used by companies
to either merge, acquire, takeover and amalgamation for the purpose of increasing their market
share, decreasing their competition, to have operational synergies, t increase their sales, to
achieve economies of scale etc. In this report the study will be conducting on merger of Asda and
Sainsbury and their after effect and strategies used and outcome of the deal. Sainsbury is one of
the largest supermarket chain in UK which offers food products, groceries etc. whereas Asda is
also a chain of supermarket and subsidiary of Walmart and offer products at cheap price. The
study shows how Sanisbury proposed a merger to Asda and the deal was failure or a success. The
study further shows the pestle analysis and porter's 5 force model and capabilities that company
must have to gain competitive advantage.
TASK 1
1. Business environment and industry attractiveness based on Pestle and porter's five force model
Asda and Sainsbury are two retailer super market chain and got merged. Sainsbury was the
company who merged Asda ans it was a horizontal merger as both the companies was operating
in the same line of business. The merger of Sainsbury and Asda focuses on The pestle analysis of
the following case is as follows -
Political factors – The political factors that can affect the deal of Asda and Sainsbury is the
government intervention in the deal as the government officials thinks that the deal will not lead
to decrease in competition but increase in prices for the customers (Sullivan, 2016). The other
concern of regulatory body is that the deal would affect suppliers and will threaten customer's
choice as goods and services of the company will be provided by the merged company at high
prices. The merger of Sainsbury and Asda will be affected by the trade policies of the UK
government which are very rigid. The other factor that will affect the merger of Sainsbury and
Asda positively are tax benefits as merger will lead to tax savings of the company.
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Economic factors – After the merger of Asda and Sainsbury the positive affect that will work is
creation of employment opportunities. As the company merged it will need employees that will
decrease unemployment in the country and will create innovation and creativity and company
will achieve economies of scale. The other economic factor that affect the company is that Asda
before merger used to offer very less items to its customers therefore after merger it might
increase the quantity of products to offer. The other economic factor which acts in the favour of
the merger is that both the companies are consumer focused and that way can be attractive to all
the customer demographics after merger.
Social factors – The merger of Sainsbury and Asda will affect society and as well as small
companies and retailers at a large stake. The merger will provide economies of scale to the
companies as well as operational synergies which will lead to expansion in the market and will
increase their market share and sales and that will lead to increase in competition for the other
competitors and also will lead to price rise which will affect the customers on a large scale. With
increase in competition the customers would not be benefited but will be in loss.
Technological factor – Sainsbury was always number one in technology updation and it is
company's positive and strong point but still after the merger the challenge was to make
technology available to the customers which can be easily accessible (Porter's five forces, 2018).
Still the technology factors was not a problem for this merger deal and the companies managed it
with continuous technology updation and innovation.
Environmental factor -The environmental factors affecting the merger of Sainsbury and Asda
negatively as the company is damaging the environment. The company is pressurizing farmers
and producers to sell their product at a cheap rate and which is harming farmers as well as
healthy environment of the county. Due to this reason the National Farmers Union assessed the
whole merger and makes sure the fairness of supply chain from farmers to company and
company to customers.
Legal factor – There are number of legal factors that can be a threat to this deal. Among these,
the recent factor that can affect the deal would be Brexit. The other factor that can affect the deal
is CMA as to overlook the effect of price and competition. The other hurdle would be EU
competition law which does not give a power to single firm to be in a dominant position to
control significant market share.
Porters-five-forces- model for Asda and Sainsbury merger
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Industry attractiveness – The future potential of the company to seek for more opportunity to
have profit. It is describes as follow with the help of five force model -
Bargaining power of buyers (High) – The bargaining power of buyers are always high and
mostly in this section of the industry (Pestle Analysis. 2016). Although after the merger of 2nd
and 3rd largest company of UK the power lies with the company, yet, the company still has
competitors like Tesco which provides the high quality products at low rates and with the merger
of these two companies the other competitors would decrease the price of their products to invite
new customers and retain the existing ones.
Threat Opportunity
The high bargaining power of customer leads
to waste of money and time for both the
companies as the profit of the company
declines.
After the merger the opportunity of the
company is to provide innovative products to
the customers gain customer's loyalty and
market share.
Bargaining power of suppliers (Low) – The bargaining power of the suppliers is less as there
are variety of suppliers present in the market and hence company can switch to other suppliers if
supplier increase their prices.
Threat Opportunity
If the suppliers decide not to sell the products
to merged company if they decrease the price it
will be a big threat to the company.
Company can stick to one supplier and can
gain the loyalty of supplier so that they can get
competitive advantage.
Threat of new entry (high) – The threat of new entrants is high as its really easy to enter in this
market and as after the merger the cost of products seems to be high so any new firm that can
offer products in lower price will have a advantage.
Threat Opportunity
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The new entry or new merger in the industry
can increase the competition of the company
can lead to decrease in marker share and
customer loss of the company.
After the merger to increase the customer base
company can provide new services to the
customers with flexibility like one click and
home delivery etc.
Threat of substitutes (Low) – The threat of substitutes is low as after the merger the company
got more powerful with its services and substitutes of food and groceries cannot be found.
Threat Opportunity
If a company comes up with better substitute
then food items or if other big company get
merge will be a threat to the company.
If company tries to enhance the quality of the
product by spending on research and
development then it can get advantage over
others.
Competition rivalry (High) - The competition between UK stores is quite high and after the
merger it got even higher. This competition leads to provide higher range of varieties to its
customers in low costs.
Threat Opportunity
If rivalry firm decreases its cost, updates its
technology with innovation can be a big threat
to the company.
After merging of then companies it get
benefited by economies of scale, operational
synergy, tax saving and high market share and
to increase that more company can open more
outlets and can lead to expansion.
2. Unique capabilities of company to have competitive advantage
There are certain factors that differ companies from other companies. Sometime they affect the
company positively and sometimes negatively. After the merger of Sainsbury and Asda the
company got affected by vast number of factors -
Low prices and increase quality – After the merger of the two companies the speculation was
that the price of goods offered to the consumers will be low but the prices of products increased
and affected the consumer and increased the competition among other stores.
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Technology advancement - The merger of these two companies has bought technology updation
and advancement in retail stores and has give a boost to technology with mobile apps, online
services that increased the efficiency of company's working operations and increased customer's
satisfaction.
More services and products – As before merger Asda use to offer very less products even after
being the 3rd largest retailer store but after the merger the services and products of Sainsbury and
Asda, it started offering variety of products and services to the customers.
Vrio analysis of the merger of Asda ans Sainsbury
By using Vrio analysis the internal factors of the Asda and Sainsbury merger can be evaluated to
see if they have any competitive advantage (Cuthbertson, 2015.). At every stage the Vrio
analysis see that if resources are fully utilised or not and can be improved to gain competitive
advantage. It stands for Valuable, Rare, Imitable and Organisation.
Valuable – After The merger of both the companies the operational synergy and
economies of scale turned out to be a best valuable output for the company. As both the
companies work together they can enjoy the benefits of operational synergy means they can
reduce the cost of production and increase their output.
The weakness lies in the company's cost structure which is not efficient. As both the companies
are merged together the cost structure would be complicated to maintain and also the resources
of the company will lead to be company's weakness.
Rare – The rare product or trait after the merger can be said to be tax advantage of the
company. As both the companies are merged together they can have tax saving benefits which
other competitors will not get.
The rare weaknesses of the company is its increase price policy that even after the merger the the
prices of goods offered by the company are launching at high rates which can affect company's
profits and can lead to loss of customers.
Imitable – the technological aspect of the company is too high as its continuously coming
up with new updation on technology and to imitate that is quite hard for other companies and
also Sainsbury before merging too had an technology advantage (VRIO Analysis, 2016.).
On the other hand the weakness lies in the employees of the company as employees of new
companies can be easily imitable by other companies.
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Organisation - the products and stores of new merged company is well organised and
capture utmost consumers by making available their products easily on internet as well as their
stores (Michalakeas, and et.al., 2015). Also the other most important organised advantage of the
company is its resources which will now be fully utilised to the efficiency and effectiveness to
achieve market share.
On the other hand the supply chain of new formed company is not efficient to deal with the
customers as the company raised and threaten suppliers to sell products at low prices which
affected the working of the organisation (Apekey, and et.al., 2019).
From the above analysis it can be concluded that after merger of Sainsbury and Asda the
company have benefits of operational synergy which helps the company to achieve economies of
scale as to increase the output and decrease the cost of production. Also it has created
employment opportunities for the people but will have to train them therefore that increased the
cost of employment and training. The other weaknesses of the company after merger is said to be
the loss of customer base as the prices of new products are high offered by the company and the
deal's another weakness is that it has high control from the government authorities and various
laws like EU laws, Brexit etc. which lead to inefficient working of operations.
3. Evaluating recent business strategy the company undertook using the three SAFe tests.
A business strategy is a course of actions, plans and processes undertaken by the company with a
view to achieve a set defined business goal and objectives thereby resulting in growth of
business, improve financial and business performance and seeking competitive advantages
(Riehl and et.al., 2016).
The business strategy adopted by Sainsbury and ASDA is based on concept of 'Dual Brand
Strategy' which helps both the companies in becoming more competitive and strong business
which will lead to better investment in the areas such as price factor, product & service quality,
different varieties & range of products & services for customer use and adoption of new and
improved technology to improve operational capacities and cost of production.
While formulating the business strategy, company has considers three important approaches viz.
Suitability, Acceptability and Feasibility. Sainsbury & ASDA merger has undergone this
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SAFe test for ascertaining the impact of post as well as pre merger on the businesses of both the
companies in following ways :
1. Suitability – The Suitability approach of SAFe test emphasizes on whether the business
actions, strategies, plans formulated by Sainsbury & ASDA for merger is helping in
achieving its specific needs, goals and objectives effectively or not. Suitability strategy of
business ensures that whether the company after merger is being capable of using
company's resources efficiently and effectively ?, whether strategies, plans formulated for
undertaking merger and post merger business by Sainsbury & ASDA were in line with
the goals of business organisation ? For Sainsbury & ASDA merger plans and policies
formulated is helping in anticipating and mitigating risk factors and helps in achieving set
defined goals. Sainsbury & ASDA business strategy is concerned with sustainable use of
environmental resources and its wiseful consumption (Riehl and et.al., 2016). The
Suitability strategy of Sainsbury & ASDA business focuses on following aspects:
1. Stakeholders expectations and complaints should be addressed properly – After
merger of Sainsbury & ASDA, business focuses on meeting the expectations of
its customers demand, stakeholders, increased quality and performance of
company's business and product, valuable services.
2. Encouraging business strengths and minimizing weaknesses – After merger takes
place, Sainsbury & ASDA uses SWOT and PESTLE analyses methods to
determine the strengths, opportunities in the market and utilising it for gaining
competitive advantages.
3. Opportunities to be exploited at its best and threats should be identified on time -
Suitability aspect defines the extent to which Sainsbury & ASDA business
strategies are suitable for company in achieving its goals by identifying the threats
and risks associated with merger and takes preventive measure to mitigate them.
(Riehl and et.al., 2016).
Sainsbury & ASDA has used this business strategy in evaluating that whether the company will
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sustain after merger when it will enter into new market with new product or services or planing
of doing so by using planned business strategies. It has helps both the organisation in gaining
competitive advantages (Riehl and et.al., 2016).
2. Acceptability - The Acceptability approach of SAFe test is defined as a business strategy
which Sainsbury & ASDA uses to make measurement of risk, return, profit and stakeholders
feedback by employing a particular business strategy. Sainsbury & ASDA measures & calculates
the return factor on the basis of its stakeholders reactions to the new business strategy of 'Dual
Brand Strategy' adopted during merger including both financial and non financial aspects, useful
in making material decisions. Hence, the risk associated with Sainsbury & ASDA merger is
measured on the basis of extent that how much the strategy is acceptable, its impact on liquidity
of business. Main emphasise done by Sainsbury & ASDAin adopting such business strategy is to
assess:
1. Profit level – that what will be the profit margin of Sainsbury & ASDAafter merger takes
place.
2. Risk involved – Sainsbury & ASDA business uses various risk measuring tools for
ascertaining the risk associated with merger activity and steps for mitigating such risk is
also taken.
3. Stakeholders & environmental influences - Sainsbury & ASDA business is influenced by
environmental and intensive competition pressure asserted by other business organisation
(Riehl and et.al., 2016).
3. Feasibility - It is used in determining the extent to which the idea or thought of Sainsbury &
ASDA merger generated for business growth is viable, economical, capable of performance or
not. Feasibility study is done for ascertaining the financial, economical and social impact of
carrying a project on environment and stakeholders (Riehl and et.al., 2016). Sainsbury & ASDA
has always uses this approach for assessing whether the business option or idea is in line with the
goals and objectives of the organisation or not. If in case, the project is not feasible, it is not
taken into consideration for making any further analysis. The factors which helps an organisation
in determining the feasibility of a business option or project or idea are as follows:
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1. Can Business option get financed or not – for merger process,Sainsbury & ASDA
requires huge fund. After merger business will be carried on large scale which will
require huge funds.
2. Is organisation deploying efficient resource or not – Sustainable and economical
utilization of resources should be done for better growth. It should have adequate and
effective personnel or expertise (Riehl and et.al., 2016).
3. Is business idea generated is free from legal barrier or not – The study about legal aspect
of business to be conducted is very important before starting any new business.
With Feasibility study, Sainsbury & ASDA organisation can determine how much successful
which be the business idea or option will be and how much cost will be incurred on
implementing such business idea (Riehl and et.al., 2016).
Here the organisation named as Sainsbury & ASDA is focusing on a business strategy of
Feasibility. As it helps the organisation in determining whether the idea generated or business
option thinking of is going to provide success in future or not which Acceptability and Suitability
doesnot provide.
CONCLUSION
From the above report it can be concluded that, Sainsbury is one of the largest
supermarket chain in UK which offers food products, groceries etc. whereas ASDA is chain of
supermarket and subsidiary of Walmart and offer products at cheap price. The report shows how
Sanisbury proposed a merger to ASDA. The organisation named Sainsbury is focusing on a
business strategy of Feasibility method. It has help the organisation in positioning their business
in new market area. It has also helped organisation to compete successfully. The report has also
explained about PESTLE Analysis, Porters five forces model and VRIO analysis used to satisfy
its customers and to achieve good business performance level. The organisation should keeps on
changing its corporate and business strategies when such strategy is not helping in achieving the
set defined goals and objectives of business. The report has also explained the SAFe test done by
Sainsbury and ASDA.
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REFERENCES
Books and Journals
Apekey, and et.al., 2019. Methods of producing new nutrient data for popularly consumed multi
ethnic foods in the UK. Journal of Food Composition and Analysis.
Cuthbertson, R., Furseth, P.I. and Ezell, S.J., 2015. Tesco and Sainsbury’s: The Need to Turn
Ideas into Action. In Innovating in a Service-Driven Economy (pp. 159-165). Palgrave
Macmillan, London.
Greenbaum, S. ed., 2015. Acceptability in language (Vol. 17). Walter de Gruyter GmbH & Co
KG.
Kilpatrick, R., and et.al., 2017. Feasibility and Acceptability of an Integrated Behavioral
Medicine Service within a Post-Bariatric Surgery Clinic. Surgery for Obesity and Related
Diseases.13(10). p.S90.
Michalakeas, D and et.al., 2015. ASDA’s fight for market share.
Riehl, M.E., and et.al., 2016. Feasibility and acceptability of esophageal-directed hypnotherapy
for functional heartburn. Diseases of the Esophagus. 29(5). pp.490-496.
Sarkar, S., Chatterjee, S. and Misra, S., 2018. Assessment of the Suitability of Fog Computing in
the Context of Internet of Things. IEEE Transactions on Cloud Computing. 6(1). pp.46-59.
Sullivan, R. and Gouldson, A., 2016. Comparing the climate change actions, targets and
performance of UK and US retailers. Corporate Social Responsibility and Environmental
Management. 23(3).pp.129-139.
Online
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